Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2011
Commission File Number: 1-1063
Dana Holding Corporation
(Exact name of registrant as specified in its charter)
Delaware
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26-1531856
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(State of incorporation)
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(IRS Employer Identification Number)
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3939 Technology Drive, Maumee, OH
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43537
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (419) 887-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
(Do not check if a smaller reporting company)
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Smaller reporting company ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 146,992,046 shares of the registrant’s common stock outstanding at July 15, 2011.
DANA HOLDING CORPORATION – FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
TABLE OF CONTENTS
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10-Q Pages
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PART I – FINANCIAL INFORMATION
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Item 1
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Financial Statements
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Consolidated Statement of Operations (Unaudited)
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3
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Consolidated Balance Sheet (Unaudited)
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4
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Consolidated Statement of Cash Flows (Unaudited)
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5
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Notes to Consolidated Financial Statements (Unaudited)
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7
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Item 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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24
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Item 3
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Quantitative and Qualitative Disclosures About Market Risk
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38
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Item 4
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Controls and Procedures
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38
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PART II – OTHER INFORMATION
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Item 1
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Legal Proceedings
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39
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Item 1A
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Risk Factors
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39
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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39
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Item 5
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Other Information
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40
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Item 6
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Exhibits
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40
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Signatures
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40 |
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Exhibit Index
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41 |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dana Holding Corporation
Consolidated Statement of Operations (Unaudited)
(In millions except per share amounts)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2011
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2010
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2011
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2010
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Net sales
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$ |
1,933 |
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$ |
1,526 |
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$ |
3,733 |
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$ |
3,034 |
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Costs and expenses
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Cost of sales
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1,700 |
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1,357 |
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3,285 |
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2,725 |
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Selling, general and administrative expenses
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107 |
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91 |
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206 |
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193 |
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Amortization of intangibles
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21 |
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16 |
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38 |
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31 |
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Restructuring charges, net
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11 |
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31 |
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41 |
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50 |
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Other income (expense), net
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20 |
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12 |
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(28 |
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(1 |
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Income before interest and income taxes
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114 |
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43 |
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135 |
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34 |
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Interest expense
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20 |
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20 |
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39 |
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46 |
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Income (loss) before income taxes
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94 |
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23 |
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96 |
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(12 |
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Income tax expense
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(31 |
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(17 |
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(62 |
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(14 |
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Equity in earnings of affiliates
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7 |
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4 |
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11 |
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6 |
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Net income (loss)
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70 |
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10 |
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45 |
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(20 |
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Less: Noncontrolling interests net income
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2 |
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1 |
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7 |
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2 |
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Net income (loss) attributable to the parent company
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68 |
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9 |
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38 |
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(22 |
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Preferred stock dividend requirements
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7 |
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8 |
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15 |
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16 |
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Net income (loss) available to common stockholders
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$ |
61 |
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$ |
1 |
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$ |
23 |
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$ |
(38 |
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Net income (loss) per share available to parent company common stockholders:
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Basic
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$ |
0.41 |
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$ |
- |
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$ |
0.16 |
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$ |
(0.28 |
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Diluted
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$ |
0.32 |
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$ |
- |
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$ |
0.15 |
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$ |
(0.28 |
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Weighted-average common shares outstanding
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Basic
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147 |
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140 |
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146 |
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140 |
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Diluted
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215 |
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146 |
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150 |
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140 |
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The accompanying notes are an integral part of the consolidated financial statements.
Dana Holding Corporation
Consolidated Balance Sheet (Unaudited)
(In millions except share and per share amounts)
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June 30,
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December 31,
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2011
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2010
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Assets |
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Current assets
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Cash and cash equivalents
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$ |
718 |
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$ |
1,090 |
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Marketable securities
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58 |
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54 |
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Accounts receivable
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Trade, less allowance for doubtful accounts of $11 in 2011 and 2010
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1,124 |
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816 |
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Other
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176 |
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184 |
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Inventories
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Raw materials
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387 |
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327 |
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Work in process and finished goods
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430 |
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381 |
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Other current assets
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98 |
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81 |
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Total current assets
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2,991 |
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2,933 |
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Goodwill
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112 |
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104 |
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Intangibles
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481 |
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352 |
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Investments and other assets
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267 |
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238 |
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Investments in affiliates
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269 |
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123 |
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Property, plant and equipment, net
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1,377 |
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1,351 |
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Total assets
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$ |
5,497 |
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$ |
5,101 |
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Liabilities and equity
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Current liabilities
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Notes payable, including current portion of long-term debt
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$ |
51 |
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$ |
167 |
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Accounts payable
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1,021 |
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779 |
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Accrued payroll and employee benefits
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148 |
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144 |
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Accrued restructuring costs
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39 |
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28 |
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Taxes on income
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53 |
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38 |
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Other accrued liabilities
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246 |
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251 |
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Total current liabilities
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1,558 |
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1,407 |
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Long-term debt
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867 |
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780 |
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Pension and postretirement obligations
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746 |
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740 |
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Other noncurrent liabilities
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401 |
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388 |
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Total liabilities
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3,572 |
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3,315 |
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Commitments and contingencies (Note 13)
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Parent company stockholders' equity
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Preferred stock, 50,000,000 shares authorized
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Series A, $0.01 par value, 2,500,000 shares outstanding
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242 |
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242 |
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Series B, $0.01 par value, 5,221,199 and 5,311,298 shares outstanding
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511 |
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520 |
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Common stock, $0.01 par value, 450,000,000 shares authorized, 146,866,944 and 144,126,032 outstanding
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1 |
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1 |
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Additional paid-in capital
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2,637 |
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2,613 |
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Accumulated deficit
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(1,166 |
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(1,189 |
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Treasury stock, at cost (512,004 and 379,631 shares)
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(7 |
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(4 |
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Accumulated other comprehensive loss
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(397 |
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(496 |
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Total parent company stockholders' equity
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1,821 |
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1,687 |
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Noncontrolling equity
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104 |
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99 |
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Total equity
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1,925 |
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1,786 |
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Total liabilities and equity
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$ |
5,497 |
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$ |
5,101 |
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The accompanying notes are an integral part of the consolidated financial statements.
Dana Holding Corporation
Consolidated Statement of Cash Flows (Unaudited)
(In millions)
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Six Months Ended
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June 30,
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2011
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2010
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Cash flows − operating activities
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Net income (loss)
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$ |
45 |
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$ |
(20 |
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Depreciation
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110 |
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123 |
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Amortization of intangibles
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45 |
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38 |
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Amortization of deferred financing charges and original issue discount
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4 |
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13 |
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Loss on sale of business
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5 |
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Loss on extinguishment of debt
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53 |
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4 |
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Reorganization-related tax claim payment
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(75 |
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Deferred income taxes
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4 |
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(6 |
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Pension expense in excess of contributions
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2 |
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9 |
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Change in working capital
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(172 |
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33 |
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Other, net
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(11 |
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(2 |
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Net cash flows provided by operating activities
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80 |
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122 |
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Cash flows − investing activities
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Purchases of property, plant and equipment
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(71 |
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(26 |
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Acquisition of business
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(163 |
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Payments to acquire interest in equity affiliates
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(124 |
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Proceeds from sale of businesses
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15 |
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113 |
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Other
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(11 |
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2 |
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Net cash flows provided by (used in) investing activities
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(354 |
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89 |
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Cash flows − financing activities
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Net change in short-term debt
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12 |
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13 |
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Proceeds from long-term debt
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763 |
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1 |
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Repayment of long-term debt
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(872 |
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(88 |
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Deferred financing payments
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(26 |
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Dividends paid to preferred stockholders
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(15 |
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(16 |
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Dividends paid to noncontrolling interests
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(3 |
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(2 |
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Other
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7 |
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1 |
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Net cash flows used in financing activities
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(134 |
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(91 |
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Net increase (decrease) in cash and cash equivalents
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(408 |
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120 |
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Cash and cash equivalents − beginning of period
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1,090 |
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|
888 |
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Effect of exchange rate changes on cash balances
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36 |
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(11 |
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Cash and cash equivalents − end of period
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$ |
718 |
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$ |
997 |
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The accompanying notes are an integral part of the consolidated financial statements.
Dana Holding Corporation
Index to Notes to Consolidated
Financial Statements
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1.
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Organization and Summary of Significant Accounting Policies
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2.
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Acquisitions and Divestitures
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3.
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Restructuring of Operations
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4.
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Goodwill and Other Intangible Assets
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8.
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Pension and Postretirement Benefit Plans
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9.
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Comprehensive Income (Loss)
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10.
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Cash Deposits and Marketable Securities
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12.
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Fair Value Measurements and Derivatives
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13.
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Commitments and Contingencies
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16.
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Other Income (Expense), Net
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Notes to Consolidated Financial Statements (Unaudited)
(In millions, except share and per share amounts)
Note 1. Organization and Summary of Significant Accounting Policies
General
Dana Holding Corporation (Dana) is headquartered in Maumee, Ohio and was incorporated in Delaware in 2007. As a leading supplier of driveline products (axles, driveshafts and transmissions), power technologies (sealing and thermal management products) and genuine service parts for vehicle manufacturers, our customer base includes virtually every major vehicle manufacturer in the global light vehicle, medium/heavy vehicle and off-highway markets.
The terms "Dana," "we," "our" and "us," when used in this report, are references to Dana. These references include the subsidiaries of Dana unless otherwise indicated or the context requires otherwise.
Summary of Significant Accounting Policies
Basis of presentation — Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. These statements are unaudited, but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The results reported in these consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the consolidated financial statements in Item 8 of our 2010 Form 10-K.
Segments — The reporting of our operating segment results was reorganized in the first quarter of 2011 in line with changes in our management structure. Certain operations in South America were moved from the Light Vehicle Driveline (LVD) segment to the Commercial Vehicle segment as the activities of these operations have become more closely aligned with the commercial vehicle market. The results of these segments have been retroactively adjusted to conform to the current reporting structure. See Note 17 for segment results.
Marketable securities — During the second quarter of 2011, we determined that marketable securities having original maturities greater than 90 days had been incorrectly reported as cash and cash equivalents in prior periods. As a result, there was an overstatement of cash and cash equivalents and understatement of marketable securities of $44 at December 31, 2010 and of $47 at March 31, 2011 and an understatement of $3 in cash used in investing activities for the three months ended March 31, 2011. With respect to the amounts reported for the six months ended June 30, 2010, the $59 overstatement of December 31, 2009 cash and cash equivalents increased to $62 during the period, causing a $3 overstatement of cash flows provided by investing activities.
In our 2010 Form 10-K, the cash and cash equivalents reported as of December 31, 2007 and 2008 and January 31, 2008 were overstated by $46, $79 and $50 with corresponding understatements of marketable securities. As a result, the reported cash provided by (used in) investing activities for the one month ended January 31, 2008, the eleven months ended December 31, 2008 and the years ended December 31, 2009 and 2010 of $77, $(221), $(98) and $2 should have been $74, $(250), $(78) and $17. Amounts reported in prior periods have been revised in the accompanying financial statements and the related notes. These revisions were not considered material to the current period or to the prior periods to which they relate.
We classify our investments in marketable securities as available for sale. Available-for-sale securities are recorded at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) (AOCI) until realized. Realized gains and losses are recorded using the specific identification method.
Marketable securities are classified in Level 1 if quoted prices are available for those securities in active markets. If quoted market prices are not available, we determine fair values using prices from quoted prices of similar securities. Such securities are generally classified in Level 2. Our fixed income U.S. government agencies securities and certificates of deposit are classified in Level 2.
Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued guidance to improve consistency in application of existing fair value measurement and disclosure requirements. The standard is intended to clarify the application of the requirements, not to establish valuation standards or affect valuation practices outside of financial reporting. The guidance is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. We do not expect adoption of this guidance to have an impact on our consolidated financial statements.
In June 2011, the FASB issued guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The standard eliminates the current option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendment requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not affect how earnings per share is calculated or presented. The guidance is effective for interim and annual periods beginning after December 15, 2011. Early adoption is permitted.
Note 2. Acquisitions and Divestitures
SIFCO — In February 2011, we entered into an agreement with SIFCO S.A. (SIFCO), a leading producer of steer axles and forged components in South America. In return for payment of $150 to SIFCO, we acquired the distribution rights to SIFCO's commercial vehicle steer axle systems as well as an exclusive long-term supply agreement for key driveline components. Additionally, SIFCO will provide selected assets and assistance to Dana to establish assembly capabilities for these systems. We are now responsible for all customer relationships, including marketing, sales, engineering and assembly. The addition of truck and bus steer axles to our product offering in South America effectively positions us as South America’s leading full-line supplier of commercial vehicle drivelines — including front and rear axles, driveshafts and suspension systems. At current production levels, this agreement is expected to generate annual sales of approximately $350.
This agreement is being accounted for as a business combination. The aggregate fair value of the net assets acquired equals the $150 paid to SIFCO with $145 allocated to customer relationships, $25 allocated to fixed assets and $20 allocated to embedded lease obligations. The customer relationships intangible asset will be amortized and the fixed assets will be depreciated on a straight-line basis over 10 years. The embedded lease obligations are being amortized using the effective-interest method over the 10 year useful lives of the related fixed assets. The purchase price allocation is based on preliminary third party valuation estimates and subject to adjustment as the valuation is finalized.
Operating results attributable to our agreement with SIFCO are reported in our Commercial Vehicle segment. We have included revenue of $173 and pre-tax income of $8 in our results of operations since February 1, 2011. Supplemental pro forma information for periods prior to the acquisition has not been provided for the SIFCO agreement. Based on the nature, scope and transitional provisions of the agreement with SIFCO, the preparation of supplemental pro forma information is not practicable.
Dongfeng Dana Axle — In June 2011, we purchased an additional 46% interest in Dongfeng Dana Axle Co., Ltd. (DDAC), a commercial vehicle axle manufacturer in China from Dongfeng Motor Co., Ltd. and certain of its affiliates for $124 plus $3 of transaction costs. Combined with the 4% interest purchased in June 2007, we now own 50% of the registered capital of DDAC.
In connection with our increase in ownership, DDAC entered into an agreement with a Dongfeng Motor affiliate that provides for reductions in the selling price of goods sold by DDAC to such affiliate for a period of up to four years if the earnings of DDAC surpass specified targets. Dana's share of DDAC's earnings could be reduced by an amount not to exceed $20. We have concluded that the impact of this agreement comprises contingent consideration and have preliminarily recorded $5 as the fair value of the contingent consideration.
Our additional investment in DDAC, inclusive of fees and contingent consideration was recorded at its fair value of $132, an excess of $72 over the corresponding DDAC book value. This fair value increase has preliminarily been allocated as follows: (1) property, plant and equipment of $21; (2) amortizable intangible assets of $12; (3) inventories of $1; (4) goodwill of $60; and (5) deferred tax liabilities of $22. The increase in basis related to property, plant and equipment will be depreciated on a straight-line basis over the remaining useful lives of the assets ranging from 10 to 45 years. The amortizable intangible assets will be amortized on a straight-line basis over the remaining useful lives of the assets ranging from four to 15 years. The purchase price allocation is based on preliminary third party valuation estimates and subject to adjustment as the valuations are finalized.
As a result of increasing our investment in DDAC from 4% to 50%, the accounting for our historical investment in DDAC has been retroactively adjusted from the cost to the equity method. The retroactive adjustment increased Dana’s equity in earnings of affiliates by $1 from amounts previously reported for each of the years ended December 31, 2010 and 2009, and had a de minimis impact on the amount previously reported for the year ended December 31, 2008. In addition, the retroactive adjustment increased Dana’s equity in earnings of affiliates by $1 for the six months ended June 30, 2011.
The following unaudited pro forma information presents the results of operations of Dana as if the additional 46% investment in DDAC had taken place at January 1, 2010. The unaudited pro forma financial information is not intended to represent or be indicative of the results of operations of Dana that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future results of operations of Dana.
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
Net income (loss)
|
|
|
|
|
|
|
As reported
|
|
$ |
45 |
|
|
$ |
(20 |
) |
Pro forma
|
|
$ |
50 |
|
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the parent company
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
38 |
|
|
$ |
(22 |
) |
Pro forma
|
|
$ |
43 |
|
|
$ |
(17 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
23 |
|
|
$ |
(38 |
) |
Pro forma
|
|
$ |
28 |
|
|
$ |
(33 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Basic
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.16 |
|
|
$ |
(0.28 |
) |
Pro forma
|
|
$ |
0.19 |
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Diluted
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.15 |
|
|
$ |
(0.28 |
) |
Pro forma
|
|
$ |
0.19 |
|
|
$ |
(0.24 |
) |
Axles India — In June 2011, we acquired the axle drive head and final assembly business of our Axles India Limited (AIL) equity affiliate for $13. This business is expected to contribute approximately $50 to our annual sales.
This transaction is being accounted for as a business combination. The valuation of the specific assets acquired and liabilities assumed has not been completed. We expect the aggregate fair value of the net assets acquired to approximate the $13 paid to AIL. The estimated fair values of major assets acquired and liabilities assumed are as follows: inventories of $3; equipment of $5; intangible assets of $8; and accounts payable of $3. The purchase price allocations are preliminary and subject to adjustment as the valuations are finalized.
Divestiture of Structural Products business — We sold substantially all of our Structural Products business in 2010. Approximately $30 of the proceeds remained as a receivable at the end of 2010 including $15 related to an earn-out provision, $8 held in escrow and $5 of deferred proceeds. In the first quarter of 2011, we received the earn-out payment of $15. We expect payment of substantially all of the remaining $15 before the fourth quarter of 2011.
Other — We are negotiating the divestiture of our axle, differential and brake systems business serving the leisure, all-terrain-vehicle and utility vehicle markets. Sales of the business approximated $59 in 2010. The assets of the business approximate $20, including $8 of property, plant and equipment, and liabilities approximate $10. These amounts are not material for reporting as items held for sale at June 30, 2011.
Note 3. Restructuring of Operations
We continue to focus on rationalizing our operating footprint — consolidating facilities, positioning operations in lower cost locations and reducing overhead costs. Restructuring expense includes costs associated with current and previously announced actions including various workforce reduction programs, manufacturing footprint optimization actions and other restructuring activities across our global businesses. In connection with our restructuring activities, we classify incremental depreciation as restructuring expense when a planned closure triggers accelerated depreciation. This amount is included in accelerated depreciation/impairment in the table below.
During 2010, we continued to execute strategic business restructuring and headcount reduction initiatives across our businesses. In the first quarter of 2010, we announced our plans to consolidate our Heavy Vehicle operations and close the Kalamazoo, Michigan and Statesville, North Carolina facilities. Certain costs associated with this consolidation were accrued in 2009. We also announced the planned closure of the Yennora, Australia facility in our LVD business and the associated transfer of certain production activity to other global operations.
In the second quarter of 2010, we approved certain additional business realignment and headcount reduction initiatives, primarily in our European and Venezuelan operations. Including costs associated with previously announced initiatives, we expensed $50 for restructuring actions during the first half of 2010, including $34 of severance and related benefit costs, $11 of exit costs and $5 of accelerated depreciation/impairment costs.
During the first quarter of 2011, we reached an agreement with the lessor to settle our LVD facility lease in Yennora, Australia. Under the terms of the agreement, we recognized $20 of lease termination costs during the first quarter. Additionally, during the first quarter of 2011, we announced the planned closure of our LVD manufacturing facility in Marion, Indiana and the consolidation of the associated manufacturing activity in other North American facilities. Including costs of these actions and of previously announced initiatives, we expensed $30 during the first quarter of 2011, including $1 of severance and related benefit costs, $28 of exit costs and $1 of accelerated depreciation/impairment cost.
During the second quarter of 2011, we incurred pension settlement costs associated with the previously announced closure of certain of our Canadian operations (see Note 8). Including costs of these actions and previously announced initiatives, we expensed $11 during the second quarter of 2011, including $7 of severance and related benefit costs, $3 of exit costs and $1 of accelerated depreciation/impairment cost.
Restructuring charges and related payments and adjustments –
|
|
Employee
|
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Depreciation/
|
|
|
Exit
|
|
|
|
|
|
|
Benefits
|
|
|
Impairment
|
|
|
Costs
|
|
|
Total
|
|
Balance at March 31, 2011
|
|
$ |
18 |
|
|
$ |
- |
|
|
$ |
23 |
|
|
$ |
41 |
|
Activity during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to restructuring
|
|
|
8 |
|
|
|
1 |
|
|
|
3 |
|
|
|
12 |
|
Adjustments of accruals
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Non-cash write-off
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Pension settlements
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Cash payments
|
|
|
(5 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(9 |
) |
Currency impact
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Balance at June 30, 2011
|
|
$ |
17 |
|
|
$ |
- |
|
|
$ |
22 |
|
|
$ |
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$ |
24 |
|
|
$ |
- |
|
|
$ |
4 |
|
|
$ |
28 |
|
Activity during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to restructuring
|
|
|
11 |
|
|
|
2 |
|
|
|
31 |
|
|
|
44 |
|
Adjustments of accruals
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Non-cash write-off
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Pension settlements
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
Cash payments
|
|
|
(11 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
(24 |
) |
Currency impact
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Balance at June 30, 2011
|
|
$ |
17 |
|
|
$ |
- |
|
|
$ |
22 |
|
|
$ |
39 |
|
At June 30, 2011, the accrued employee termination benefits relate to the reduction of approximately 400 employees to be completed over the next two years. The exit costs relate primarily to lease terminations. We estimate cash expenditures to approximate $33 in 2011 and $6 thereafter.
Cost to complete — The following table provides project-to-date and estimated future expenses for completion of our pending restructuring initiatives for our business segments.
|
|
Expense Recognized
|
|
|
Future
|
|
|
|
Prior to
|
|
|
|
|
|
Total
|
|
|
Cost to
|
|
|
|
2011
|
|
|
2011
|
|
|
to Date
|
|
|
Complete
|
|
LVD
|
|
$ |
46 |
|
|
$ |
31 |
|
|
$ |
77 |
|
|
$ |
15 |
|
Power Technologies
|
|
|
14 |
|
|
|
1 |
|
|
|
15 |
|
|
|
2 |
|
Commercial Vehicle
|
|
|
42 |
|
|
|
6 |
|
|
|
48 |
|
|
|
13 |
|
Off-Highway
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
2 |
|
Structures
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Total
|
|
$ |
108 |
|
|
$ |
41 |
|
|
$ |
149 |
|
|
$ |
35 |
|
The remaining cost to complete includes estimated contractual and noncontractual separation payments, lease continuation costs, equipment transfers and other costs which are required to be recognized as closures are finalized or as incurred during the closure.
Note 4. Goodwill and Other Intangible Assets
Changes in goodwill — Our goodwill balance of $112 at June 30, 2011 is related to the Off-Highway segment. The euro-denominated asset increased by $8 during the first half of 2011 as a result of foreign currency translation. In the first half of 2010, the weakening of the euro caused the goodwill balance to decrease by $16.
Components of other intangible assets —
|
|
Weighted
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Average
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Impairment and
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Impairment and
|
|
|
Carrying
|
|
|
|
(years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
7 |
|
|
$ |
97 |
|
|
$ |
(51 |
) |
|
$ |
46 |
|
|
$ |
94 |
|
|
$ |
(43 |
) |
|
$ |
51 |
|
Trademarks and trade names
|
|
|
17 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
3 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
3 |
|
Customer relationships
|
|
|
8 |
|
|
|
583 |
|
|
|
(224 |
) |
|
|
359 |
|
|
|
412 |
|
|
|
(179 |
) |
|
|
233 |
|
Other intangibles
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
$ |
757 |
|
|
$ |
(276 |
) |
|
$ |
481 |
|
|
$ |
575 |
|
|
$ |
(223 |
) |
|
$ |
352 |
|
Other intangibles represent the preliminary valuation of intangible assets related to our acquisition of the axle drive head and final assembly business of our Axles India Limited equity affiliate. The net carrying amounts of intangible assets, other than goodwill, attributable to each of our operating segments at June 30, 2011 were as follows: LVD — $17, Power Technologies — $42, Commercial Vehicle — $293 and Off-Highway — $129.
Amortization expense related to the amortizable intangible assets —
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Charged to cost of sales
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
7 |
|
Charged to amortization of intangibles
|
|
|
21 |
|
|
|
16 |
|
|
|
38 |
|
|
|
31 |
|
Total amortization
|
|
$ |
24 |
|
|
$ |
19 |
|
|
$ |
45 |
|
|
$ |
38 |
|
The following table provides the estimated aggregate pre-tax amortization expense related to intangible assets for each of the next five years based on June 30, 2011 exchange rates. Actual amounts may differ from these estimates due to such factors as currency translation, customer turnover, impairments, additional intangible asset acquisitions and other events.
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of 2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense
|
|
$ |
46 |
|
|
$ |
93 |
|
|
$ |
93 |
|
|
$ |
60 |
|
|
$ |
28 |
|
Note 5. Capital Stock
Series A and Series B preferred stock — Dividends on our 4.0% Series A Convertible Preferred Stock and 4.0% Series B Convertible Preferred Stock (preferred stock) have been accrued from the issue date and are payable in cash as approved by the Board of Directors. Preferred dividends accrued at June 30, 2011 were $7 related to the quarter ended June 30, 2011.
During the first half of 2011, holders of 90,099 shares of Series B Preferred Stock elected to convert those preferred shares into common stock and received 760,945 shares. The common stock issued included shares to satisfy the accrued dividends owed to the converting preferred stock holders. Based on the market price of Dana common stock on the date of conversion, the total fair value of the conversions was $14.
Note 6. Earnings per Share
The following table reconciles the weighted-average number of shares used in the basic earnings per share calculations to the weighted-average number of shares used to compute diluted earnings per share.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In millions)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Weighted-average number of shares outstanding - basic
|
|
|
146.7 |
|
|
|
140.3 |
|
|
|
146.0 |
|
|
|
139.9 |
|
Employee compensation-related shares, including stock options
|
|
|
3.4 |
|
|
|
5.8 |
|
|
|
3.7 |
|
|
|
|
|
Conversion of preferred stock
|
|
|
64.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding - diluted
|
|
|
214.8 |
|
|
|
146.1 |
|
|
|
149.7 |
|
|
|
139.9 |
|
Basic income per share is calculated by dividing the net income available to parent company stockholders, less preferred stock dividend requirements, by the weighted-average number of common shares outstanding. The outstanding common shares computation excludes any shares held in treasury.
The share count for diluted income per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (CSEs) outstanding during the period. We excluded 0.5 million and 1.4 million CSEs from the calculations of diluted earnings per share for the quarters ended June 30, 2011 and 2010 and 0.4 million and 1.9 million CSEs from the calculations of diluted earnings per share for the six months ended June 30, 2011 and 2010 as the effect of including them would have been anti-dilutive. In addition, we excluded CSEs that satisfied the definition of potentially dilutive shares of 5.7 million for the six-month period in 2010 due to the dilutive effect of the loss for the period.
We excluded 66.2 million CSEs related to the assumed conversion of the preferred stock for the quarter ended June 30, 2010 and 65.5 and 66.2 million CSEs for the six-month periods in 2011 and 2010. The effect of the conversion of the preferred stock would be anti-dilutive for those periods.
Note 7. Stock Compensation
Our Board of Directors approved the grant of stock options, stock appreciation rights (SARs), restricted stock units (RSUs) and performance share units (PSUs) shown in the table below during the first half of 2011 under the 2008 Omnibus Incentive Plan.
|
|
|
|
|
Weighted-average
|
|
|
|
Granted
|
|
|
Per Share
|
|
|
Grant Date
|
|
|
|
(In millions)
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
Stock options
|
|
|
0.6 |
|
|
$ |
17.52 |
|
|
$ |
9.82 |
|
SARs
|
|
|
0.1 |
|
|
$ |
17.80 |
|
|
$ |
10.00 |
|
RSUs
|
|
|
0.9 |
|
|
|
|
|
|
$ |
17.31 |
|
PSUs
|
|
|
0.2 |
|
|
|
|
|
|
$ |
17.80 |
|
Stock options and SARs related to 1.8 million shares were exercised and 0.2 million shares were forfeited in the first half of 2011. We received $10 of cash from the exercise of stock options and we paid $4 of cash to settle SARs, RSUs and PSUs during the first half of 2011. We also issued 0.2 million shares related to PSUs based on achievement of our 2010 performance goals and 0.2 million in RSUs based on vesting.
We estimated fair values for options and SARs granted during 2011 using the following key assumptions as part of the Black-Scholes option pricing model. The expected term was estimated using the simplified method because the limited period of time our common stock has been publicly traded provides insufficient historical exercise data. The expected volatility was estimated using a combination of the historical volatility of similar entities and the implied volatility of our exchange-traded options. The dividend yield is assumed to be zero since there are no current plans to pay common stock dividends.
|
|
Options
|
|
|
SARs
|
|
Expected term (in years)
|
|
|
6.00 |
|
|
|
6.00 |
|
Risk-free interest rate
|
|
|
2.64 |
% |
|
|
2.67 |
% |
Expected volatility
|
|
|
58.08 |
% |
|
|
58.20 |
% |
We recognized stock compensation expense of $5 and $3 during the second quarter of 2011 and 2010 and $8 and $6 during the first half of 2011 and 2010. At June 30, 2011, the total unrecognized compensation cost related to the non-vested portions of all stock based awards granted and expected to vest over the next 0.1 to 2.8 years was $25. This cost is expected to be recognized over a weighted-average period of 1.0 year.
Note 8. Pension and Postretirement Benefit Plans
We have a number of defined contribution and defined benefit, qualified and nonqualified, pension plans for certain employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.
Components of net periodic benefit costs —
|
|
Pension
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
OPEB - Non-U.S.
|
|
Three Months Ended June 30,
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
2011
|
|
|
2010
|
|
Interest cost
|
|
$ |
22 |
|
|
$ |
3 |
|
|
$ |
26 |
|
|
$ |
5 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Expected return on plan assets
|
|
|
(26 |
) |
|
|
(1 |
) |
|
|
(24 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
5 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost before curtailments and settlements
|
|
|
1 |
|
|
|
4 |
|
|
|
5 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Settlement loss
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
1 |
|
|
$ |
8 |
|
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$ |
46 |
|
|
$ |
7 |
|
|
$ |
52 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
$ |
4 |
|
Expected return on plan assets
|
|
|
(52 |
) |
|
|
(2 |
) |
|
|
(48 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Service cost
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
10 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost before curtailments and settlements
|
|
|
4 |
|
|
|
8 |
|
|
|
10 |
|
|
|
8 |
|
|
|
4 |
|
|
|
4 |
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Settlement loss
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
4 |
|
|
$ |
13 |
|
|
$ |
10 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
$ |
3 |
|
During the first half of 2011, we continued to settle portions of our Canadian retiree pension benefit obligations by making lump-sum payments and by purchasing non-participating annuity contracts to cover vested benefits. As a result of these actions, we reduced the benefit obligations by $75 and also reduced the fair value of plan assets by $75. The related settlement loss of $5 was included in restructuring charges.
Note 9. Comprehensive Income (Loss)
The following table presents changes in consolidated equity attributable to parent and noncontrolling interests:
|
|
2011
|
|
|
2010
|
|
Three Months Ended June 30,
|
|
Attributable
to Parent
|
|
|
Attributable
to Non-
controlling
Interests
|
|
|
Total
Equity
|
|
|
Attributable
to Parent
|
|
|
Attributable
to Non-
controlling
Interests
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$ |
1,712 |
|
|
$ |
102 |
|
|
$ |
1,814 |
|
|
$ |
1,623 |
|
|
$ |
101 |
|
|
$ |
1,724 |
|
Net income
|
|
|
68 |
|
|
|
2 |
|
|
|
70 |
|
|
|
9 |
|
|
|
1 |
|
|
|
10 |
|
Currency translation adjustments
|
|
|
32 |
|
|
|
1 |
|
|
|
33 |
|
|
|
(64 |
) |
|
|
|
|
|
|
(64 |
) |
Defined benefit plans
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Unrealized investment gains and other
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Other comprehensive income (loss)
|
|
|
42 |
|
|
|
1 |
|
|
|
43 |
|
|
|
(57 |
) |
|
|
|
|
|
|
(57 |
) |
Total comprehensive income (loss)
|
|
|
110 |
|
|
|
3 |
|
|
|
113 |
|
|
|
(48 |
) |
|
|
1 |
|
|
|
(47 |
) |
Other changes in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Stock compensation
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Dividends declared
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
Ending Balance, June 30
|
|
$ |
1,821 |
|
|
$ |
104 |
|
|
$ |
1,925 |
|
|
$ |
1,572 |
|
|
$ |
98 |
|
|
$ |
1,670 |
|
|
|
2011
|
|
|
2010 |
|
Six Months Ended June 30,
|
|
Attributable
to Parent
|
|
|
Attributable
to Non-
controlling
Interests
|
|
|
Total
Equity
|
|
|
Attributable
to Parent
|
|
|
Attributable
to Non-
controlling
Interests
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$ |
1,687 |
|
|
$ |
99 |
|
|
$ |
1,786 |
|
|
$ |
1,680 |
|
|
$ |
100 |
|
|
$ |
1,780 |
|
Net income (loss)
|
|
|
38 |
|
|
|
7 |
|
|
|
45 |
|
|
|
(22 |
) |
|
|
2 |
|
|
|
(20 |
) |
Currency translation adjustments
|
|
|
83 |
|
|
|
1 |
|
|
|
84 |
|
|
|
(92 |
) |
|
|
1 |
|
|
|
(91 |
) |
Defined benefit plans
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Reclassification to net loss of divestiture's cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Unrealized investment gains (losses) and other
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Other comprehensive income (loss)
|
|
|
99 |
|
|
|
1 |
|
|
|
100 |
|
|
|
(77 |
) |
|
|
1 |
|
|
|
(76 |
) |
Total comprehensive income (loss)
|
|
|
137 |
|
|
|
8 |
|
|
|
145 |
|
|
|
(99 |
) |
|
|
3 |
|
|
|
(96 |
) |
Other changes in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
Stock compensation
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
7 |
|
|
|
|
|
|
|
7 |
|
Dividends declared
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
Ending Balance, June 30
|
|
$ |
1,821 |
|
|
$ |
104 |
|
|
$ |
1,925 |
|
|
$ |
1,572 |
|
|
$ |
98 |
|
|
$ |
1,670 |
|
The noncontrolling interests net income reported for the first half of 2011 includes a $3 charge to correct the amounts reported in 2010. This amount is not material to the current period or to the prior periods to which it relates.
Note 10. Cash Deposits and Marketable Securities
Cash deposits are maintained to provide credit enhancement for certain agreements and are reported as part of cash and cash equivalents. For most of these deposits, the cash may be withdrawn if comparable security is provided in the form of letters of credit. Accordingly, these deposits are not considered to be restricted.
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$ |
197 |
|
|
$ |
419 |
|
|
$ |
616 |
|
Cash and cash equivalents held as deposits
|
|
|
3 |
|
|
|
35 |
|
|
|
38 |
|
Cash and cash equivalents held at less than wholly-owned subsidiaries
|
|
|
|
|
|
|
64 |
|
|
|
64 |
|
Balance at June 30, 2011
|
|
$ |
200 |
|
|
$ |
518 |
|
|
$ |
718 |
|
A portion of the non-U.S. cash and cash equivalents is utilized for working capital and other operating purposes. Several countries have local regulatory requirements that significantly restrict the ability of our operations to repatriate this cash. Beyond these restrictions, there are practical limitations on repatriation of cash from certain countries because of the resulting tax withholdings.
The following table summarizes information regarding marketable securities:
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
|
$ |
25 |
|
|
$ |
- |
|
|
$ |
25 |
|
|
$ |
23 |
|
|
$ |
- |
|
|
$ |
23 |
|
Corporate equity securities
|
|
|
5 |
|
|
|
4 |
|
|
|
9 |
|
|
|
5 |
|
|
|
3 |
|
|
|
8 |
|
Certificates of deposit
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Mutual funds
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
Total marketable securities
|
|
$ |
54 |
|
|
$ |
4 |
|
|
$ |
58 |
|
|
$ |
51 |
|
|
$ |
3 |
|
|
$ |
54 |
|
U.S. government agencies securities and certificates of deposit maturing in one year or less and maturing after one year through five years total $12 and $25 at June 30, 2011.
Dana realized proceeds from liquidating available-for-sale marketable securities prior to their scheduled maturities in the three months and six months ended June 30 of $2 and $7 in 2011 and $8 and $15 in 2010. The related gains and losses realized on this activity were de minimis.
Note 11. Financing Agreements
Senior notes — In January 2011, we completed the sale of $400 in senior unsecured notes at 6.50%, due February 15, 2019 (the 2019 Notes) and $350 in senior unsecured notes at 6.75%, due February 15, 2021 (the 2021 Notes) (collectively, the Senior Notes). Interest on the notes is payable on February 15 and August 15 of each year beginning on August 15, 2011. Net proceeds of the offerings totaled approximately $733, net of the underwriting commission of $15 and fees of $2. The underwriting commission and debt issue costs were recorded as deferred costs and will be amortized to interest expense over the life of the Senior Notes. The net proceeds, plus cash and cash equivalents on hand of $127 (net of amounts paid to a Dana subsidiary), were used to repay all amounts outstanding under our existing Term Facility. In connection with the sale of the Senior Notes, we wrote off $51 of previously deferred financing costs and original issue discount (OID) to loss on extinguishment of debt.
At any time on or after February 15, 2015, we may redeem some or all of the Senior Notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on February 15 of the years set forth below:
|
|
Redemption Price
|
|
Year
|
|
2019 Notes
|
|
|
2021 Notes
|
|
2015
|
|
|
103.250 |
% |
|
|
|
2016
|
|
|
101.625 |
% |
|
|
103.375 |
% |
2017
|
|
|
100.000 |
% |
|
|
102.250 |
% |
2018
|
|
|
100.000 |
% |
|
|
101.125 |
% |
2019 and thereafter
|
|
|
100.000 |
% |
|
|
100.000 |
% |
Prior to February 15, 2015 for the 2019 Notes and prior to February 15, 2016 for the 2021 Notes, during any 12-month period, we may at our option redeem up to 10% of the aggregate principal amount of the notes at a redemption price equal to 103% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date. Prior to these dates, we may also redeem some or all of the notes at a redemption price equal to 100% of the aggregate principal amount, plus accrued and unpaid interest, if any, to the redemption date plus a "make-whole" premium. At any time prior to February 15, 2014 for the 2019 Notes and February 15, 2015 for the 2021 Notes, we may redeem up to 35% of the aggregate principal amount of the notes in an amount not to exceed the amount of proceeds of one or more equity offerings, at a price equal to 106.5% (2019 Notes) and 106.75% (2021 Notes) of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the original aggregate principal amount of the notes issued remains outstanding after the redemption.
Revolving facility — In order to complete the refinancing of our term debt in January 2011, we entered into a second amendment (the Amendment) to our Revolving Credit and Guaranty Agreement (the Revolving Facility). The Amendment permitted, among other things, repayment in full of all amounts outstanding under our then existing term debt using the net proceeds from the issuance of the Senior Notes and our current cash and cash equivalents. Following the issuance of the Senior Notes, we received commitments from new and existing lenders for a $500 amended and extended revolving credit facility (the New Revolving Facility). The New Revolving Facility extends the maturity of the revolving facility to five years from the date of execution in February 2011 and reduces the aggregate principal amount of the facility from $650 to $500. In connection with the amended revolving facility, we paid fees of $6 which were recorded in the first quarter of 2011 as deferred costs and we wrote off $2 of previously deferred financing costs to loss on extinguishment of debt.
The New Revolving Facility is guaranteed by all of our domestic subsidiaries except for Dana Credit Corporation and Dana Companies, LLC and their respective subsidiaries (the guarantors) and grants a first priority lien on Dana's and the guarantors' accounts receivable and inventory and a second priority lien on substantially all of Dana's and the guarantors' remaining assets, including a pledge of 65% of the stock of our material foreign subsidiaries.
The New Revolving Facility bears interest at a floating rate based on, at our option, the base rate or London Interbank Offered Rate (LIBOR) (each as described in the New Revolving Facility) plus a margin based on the undrawn amounts available under the New Revolving Facility as set forth below:
Remaining Borrowing Availability
|
|
Base Rate
|
|
|
LIBOR Rate
|
|
Greater than $350
|
|
|
1.50 |
% |
|
|
2.50 |
% |
Greater than $150 but less than or equal to $350
|
|
|
1.75 |
% |
|
|
2.75 |
% |
$150 or less
|
|
|
2.00 |
% |
|
|
3.00 |
% |
Commitment fees are applied based on the average daily unused portion of the available amounts under the New Revolving Facility. If the average daily use is less than 50%, the applicable fee will be 0.50% per annum. If the average daily unused portion of the New Revolving Facility is equal to or greater than 50%, the applicable fee will be 0.625% per annum. Up to $300 of the New Revolving Facility may be applied to letters of credit, which reduces availability. We pay a fee for issued and undrawn letters of credit in an amount per annum equal to the applicable LIBOR margin based on a quarterly average availability under the New Revolving Facility and a per annum fronting fee of 0.25%, payable quarterly.
At June 30, 2011, we had $750 principal amount of Senior Notes outstanding. There were no borrowings under the New Revolving Facility but we had utilized $85 for letters of credit. The weighted-average interest rate on the Senior Notes was 6.62% at June 30, 2011. Based on our borrowing base collateral of $432, we had potential availability at that date under the New Revolving Facility of $347 after deducting the outstanding letters of credit.
European receivables loan facility — In March 2011, we terminated our previous European receivables loan agreements and established a new five-year €75 ($109 at the June 30, 2011 exchange rate) receivables securitization program. Availability under the program is subject to the existence of adequate levels of supporting accounts receivable. At June 30, 2011, we had potential availability of $99 based on the effective borrowing base. Deferred fees of less than $1 on the former agreement were charged to loss on extinguishment of debt and new fees of $2 were deferred and are being charged to interest expense over the term of the program.
Advances under the program will bear interest based on the London Interbank Offered Rate (LIBOR) applicable to the currency in which each advance is denominated or an Alternate Base Rate (as defined). All advances are to be repaid in full by March 2016. Dana will pay a fee on any unused amount of the program, in addition to other customary fees. The program is subject to customary representations and warranties, covenants and events of default. As of June 30, 2011, we had no borrowings under this program.
Debt covenants — At June 30, 2011, we were in compliance with the covenants of our debt agreements. Under the New Revolving Facility and the Senior Notes, we are required to comply with certain incurrence-based covenants customary for facilities of these types.
The incurrence-based covenants in the New Revolving Facility permit Dana to, among other things, (i) issue foreign subsidiary indebtedness, (ii) incur general indebtedness, which can be secured by the assets that previously secured the Term Facility on a first priority basis and (iii) incur additional unsecured debt so long as the pro forma minimum fixed charge coverage ratio is at least 1.1:1.0. Dana may also make dividend payments in respect of its common stock as well as certain investments and acquisitions so long as there is (i) at least $125 of pro forma excess borrowing availability or (ii) at least $75 of pro forma excess borrowing availability and the pro forma minimum fixed charge coverage ratio is at least 1.1:1.0. The indenture governing the Senior Notes includes similar incurrence-based covenants that may subject Dana to additional specified limitations.
Note 12. Fair Value Measurements and Derivatives
In measuring the fair value of our assets and liabilities, we use market data or assumptions that we believe market participants would use in pricing an asset or liability including assumptions about risk when appropriate. Our valuation techniques include a combination of observable and unobservable inputs.
Fair value measurements on a recurring basis — Assets and liabilities that are carried in our balance sheet at fair value are as follows:
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
Markets
|
|
|
Observable
|
|
|
Unobservable
|
|
June 30, 2011
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Notes receivable - noncurrent asset
|
|
$ |
109 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
109 |
|
Marketable securities - current asset
|
|
|
58 |
|
|
|
21 |
|
|
|
37 |
|
|
|
|
|
Currency forward contracts - current asset
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Currency forward contracts - current liability
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable - noncurrent asset
|
|
$ |
103 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
103 |
|
Marketable securities - current asset
|
|
|
54 |
|
|
|
16 |
|
|
|
38 |
|
|
|
|
|
Currency forward contracts - current asset
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Currency forward contracts - current liability
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
Foreign currency derivatives — The total notional amounts of outstanding foreign currency derivatives as of June 30, 2011 and December 31, 2010 were $80 and $108 comprised of currency forward contracts involving the exchange of U.S. dollars, euros, British pounds, Canadian dollars, Swiss francs, Swedish krona, Japanese yen, Hungarian forints, South African rand and Indian rupees as well as a cross-currency swap involving the exchange of Australian dollars and South African rand. At June 30, 2011, currency forward contracts with notional amounts of $48 were designated as cash flow hedges.
Amounts to be reclassified to earnings — Deferred gains at June 30, 2011 and losses at December 31, 2010 reported in AOCI include de minimis amounts expected to be reclassified to earnings during the next twelve months. Amounts expected to be reclassified to earnings assume no change in the current hedge relationships or to June 30, 2011 market rates. A de minimis amount was reclassified from AOCI to earnings in the first half of 2011.
Changes in Level 3 recurring fair value measurements —
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Notes receivable
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Beginning of period
|
|
$ |
106 |
|
|
$ |
94 |
|
|
$ |
103 |
|
|
$ |
94 |
|
Accretion of value (interest income)
|
|
|
3 |
|
|
|
3 |
|
|
|
6 |
|
|
|
5 |
|
Note sold in Structures sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
End of period
|
|
$ |
109 |
|
|
$ |
97 |
|
|
$ |
109 |
|
|
$ |
97 |
|
Substantially all of the notes receivable balance consists of one note, due 2019, obtained in connection with a divestiture in 2004. Its fair value is adjusted each quarter to the lower of its callable value or its market value, which is based on the publicly traded debt of the operating subsidiary of the obligor. The fair value of the note at June 30, 2011 and December 31, 2010 approximated the callable value and we believe that the note will be paid in full at the end of the term or sooner.
Fair value measurements on a nonrecurring basis — In addition to items that are measured at fair value on a recurring basis, we also have long-lived assets that may be measured at fair value on a nonrecurring basis. These assets include intangible assets and property, plant and equipment which may be written down to fair value as a result of impairment.
Note 13. Commitments and Contingencies
Asbestos personal injury liabilities — We had approximately 27,000 active pending asbestos personal injury liability claims at June 30, 2011 versus 30,000 at December 31, 2010. In addition, approximately 11,000 mostly inactive claims have been settled and are awaiting final documentation and dismissal, with or without payment. We have accrued $96 for indemnity and defense costs for settled, pending and future claims at June 30, 2011, compared to $101 at December 31, 2010. We use a fifteen-year time horizon for our estimate of this liability.
At June 30, 2011, we had recorded $51 as an asset for probable recovery from our insurers for the pending and projected asbestos personal injury liability claims, compared to $52 recorded at December 31, 2010. The recorded asset represents our assessment of the capacity of our current insurance agreements to provide for the payment of anticipated defense and indemnity costs for pending claims and projected future demands. The recognition of these recoveries is based on our assessment of our right to recover under the respective contracts and on the financial strength of the insurers. We have coverage agreements in place with our insurers confirming substantially all of the related coverage and payments are being received on a timely basis. The financial strength of these insurers is reviewed at least annually with the assistance of a third party. The recorded asset does not represent the limits of our insurance coverage, but rather the amount we would expect to recover if we paid the accrued indemnity and defense costs.
During the quarter ended June 30, 2011, we reached an agreement with an insurer to settle a long-standing claim pending in the liquidation proceedings of the insurer and recorded the estimated fair value of the recovery. As a result, other income includes a $6 credit for this recovery of past outlays related to asbestos claims. During the first half of 2010, we recorded $1 of expense (before tax) ($2 during the first quarter, offset by a $1 credit during the second quarter) to correct amounts primarily related to asbestos receivables at December 31, 2009. These adjustments were not considered material to the reporting periods in 2010 or to the prior periods to which they relate.
Other product liabilities — We had accrued $1 for non-asbestos product liability costs at June 30, 2011 and December 31, 2010, with no recovery expected from third parties at either date. We estimate these liabilities based on assumptions about the value of the claims and about the likelihood of recoveries against us derived from our historical experience and current information.
Environmental liabilities — Accrued environmental liabilities were $12 at June 30, 2011 and $13 at December 31, 2010. We consider the most probable method of remediation, current laws and regulations and existing technology in determining the fair value of our environmental liabilities. Other accounts receivable included $1 recoverable from an insurer at both dates.
Bankruptcy claims resolution — Dana and forty of its wholly-owned subsidiaries (collectively, the Debtors) reorganized under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11) from March 3, 2006 until emergence on January 31, 2008 (the Effective Date). On the Effective Date, we consummated the Third Amended Joint Plan of Reorganization of Debtors and Debtors in Possession as modified (the Plan) and emerged from Chapter 11. As provided in the Plan, we issued and set aside approximately 28 million shares of Dana common stock (valued in reorganization at $640) for future distribution to holders of allowed unsecured nonpriority claims in Class 5B under the Plan. These shares are being distributed as the disputed and unliquidated claims are resolved. Since emergence, we have issued 24 million of the 28 million shares for allowed claims (valued in reorganization at $558), increasing the total shares issued to 94 million (valued in reorganization at $2,186) for unsecured claims of approximately $2,266. The corresponding decrease in the disputed claims reserve leaves approximately 4 million shares (valued in reorganization at $84). All previously disputed and unliquidated claims have been settled. Accordingly the 4 million remaining shares will be distributed to the holders of the previously allowed general unsecured claims in Class 5B.
Other legal matters — We are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, we cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, we do not believe that any liabilities that may result from these proceedings are reasonably likely to have a material adverse effect on our liquidity, financial condition or results of operations.
Note 14. Warranty Obligations
We record a liability for estimated warranty obligations at the dates our products are sold. We record the liability based on our estimate of costs to settle future claims. Adjustments are made as new information becomes available. Changes in our warranty liabilities are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Balance, beginning of period
|
|
$ |
85 |
|
|
$ |
82 |
|
|
$ |
85 |
|
|
$ |
83 |
|
Amounts accrued for current period sales
|
|
|
15 |
|
|
|
12 |
|
|
|
25 |
|
|
|
24 |
|
Adjustments of prior accrual estimates
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
Settlements of warranty claims
|
|
|
(10 |
) |
|
|
(11 |
) |
|
|
(23 |
) |
|
|
(24 |
) |
Currency impact and other
|
|
|
2 |
|
|
|
(2 |
) |
|
|
4 |
|
|
|
(3 |
) |
Balance, end of period
|
|
$ |
92 |
|
|
$ |
83 |
|
|
$ |
92 |
|
|
$ |
83 |
|
We have been notified of an alleged quality issue at a foreign subsidiary of Dana that produces engine coolers for a unit of Sogefi SpA that were used in modules supplied to Volkswagen. Based on the information currently available to us, we do not believe that this matter will result in a material liability to Dana.
We estimate the effective tax rate expected to be applicable for the full fiscal year and use that rate to provide for income taxes in interim reporting periods. We also recognize the tax impact of certain discrete (unusual or infrequently occurring) items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.
We reported income tax expense of $31 and $17 for the quarters ended June 30, 2011 and 2010 and $62 and $14 for the respective six month periods. The income tax rate varies from the U.S. federal statutory rate of 35% due to valuation allowances in several countries, non-deductible expenses, different statutory rates outside of the U.S. and withholding taxes related to expected repatriations of international earnings to the U.S.
We record interest income or expense, as well as penalties, related to uncertain tax positions as a component of income tax expense or benefit. Net interest expense for the periods presented herein is de minimis.
We provide for U.S. federal income and non-U.S. withholding taxes on the earnings of our non-U.S. operations that are not considered to be permanently reinvested. Accordingly, we continue to analyze and adjust the estimated tax impact of the income and non-U.S. withholding liabilities based on the amount and source of these earnings. We recognized an expense of $1 for both of the quarters ended June 30, 2011 and 2010 and $1 and $3 for the respective six month periods.
We have generally not recognized tax benefits on losses generated in several countries, including the U.S., where the recent history of operating losses does not allow us to satisfy the "more likely than not" criterion for the recognition of deferred tax assets. Consequently, there is no income tax benefit recognized on the pre-tax losses in these jurisdictions as valuation allowances are established offsetting the associated tax benefit.
Note 16. Other Income (Expense), Net
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Interest income
|
|
$ |
6 |
|
|
$ |
7 |
|
|
$ |
13 |
|
|
$ |
13 |
|
Foreign exchange gain (loss)
|
|
|
1 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
(10 |
) |
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
|
|
(4 |
) |
Loss on sale of Structural Products business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
Other
|
|
|
13 |
|
|
|
3 |
|
|
|
14 |
|
|
|
5 |
|
Other income (expense), net
|
|
$ |
20 |
|
|
$ |
12 |
|
|
$ |
(28 |
) |
|
$ |
(1 |
) |
As discussed in Note 11 above, the losses on extinguishment of debt resulted primarily from repayment of our Term Facility debt. The losses represent the OID and deferred financing fees written off in connection with early payments of principal and modifications of our borrowing programs. As discussed in Note 13 above, a recovery finalized in June 2011 of past outlays related to asbestos claims resulted in a $6 credit to other income.
Foreign exchange gains and losses on cross-currency intercompany loan balances that are not considered permanently invested are reported above. Foreign exchange gains and losses on loans that are permanently invested are reported in other comprehensive income (loss). Foreign exchange loss for the first half of 2010 also includes a charge of $3 resulting from the devaluation of the Venezuelan bolivar.
The components that management establishes for purposes of making decisions about an enterprise's operating matters are referred to as "operating segments." We manage our operations globally through five operating segments – two on-highway segments, Light Vehicle Driveline (LVD) and Commercial Vehicle, Off-Highway, Power Technologies and Structures. The reporting of our operating segment results was reorganized in the first quarter of 2011 in line with changes in our management structure. Certain operations in South America were moved from the LVD segment to the Commercial Vehicle segment as the activities of these operations have become more closely aligned with the commercial vehicle market. The results of these segments have been retroactively adjusted to conform to the current reporting structure.
We report the results of our operating segments and related disclosures about each of our segments on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to those segments. The primary measure of operating results is segment EBITDA. Management believes that adjusted EBITDA is an important measure since the financial covenants in our debt agreements are based, in part, on adjusted EBITDA. Our segments are charged for corporate and other shared administrative costs.
We used the following information to evaluate our operating segments:
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
|
Three Months Ended
|
|
External
|
|
|
Segment
|
|
|
Segment
|
|
|
External
|
|
|
Segment
|
|
|
Segment
|
|
June 30,
|
|
Sales
|
|
|
Sales
|
|
|
EBITDA
|
|
|
Sales
|
|
|
Sales
|
|
|
EBITDA
|
|
LVD
|
|
$ |
654 |
|
|
$ |
53 |
|
|
$ |
60 |
|
|
$ |
621 |
|
|
$ |
48 |
|
|
$ |
64 |
|
Power Technologies
|
|
|
269 |
|
|
|
7 |
|
|
|
37 |
|
|
|
234 |
|
|
|
7 |
|
|
|
35 |
|
Commercial Vehicle
|
|
|
583 |
|
|
|
30 |
|
|
|
55 |
|
|
|
364 |
|
|
|
22 |
|
|
|
39 |
|
Off-Highway
|
|
|
414 |
|
|
|
16 |
|
|
|
51 |
|
|
|
287 |
|
|
|
10 |
|
|
|
25 |
|
Structures
|
|
|
13 |
|
|
|
|
|
|
|
1 |
|
|
|
18 |
|
|
|
|
|
|
|
(3 |
) |
Eliminations and other
|
|
|
|
|
|
|
(106 |
) |
|
|
|
|
|
|
2 |
|
|
|
(87 |
) |
|
|
|
|
Total
|
|
$ |
1,933 |
|
|
$ |
- |
|
|
$ |
204 |
|
|
$ |
1,526 |
|
|
$ |
- |
|
|
$ |
160 |
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LVD
|
|
$ |
1,327 |
|
|
$ |
109 |
|
|
$ |
126 |
|
|
$ |
1,169 |
|
|
$ |
92 |
|
|
$ |
106 |
|
Power Technologies
|
|
|
536 |
|
|
|
14 |
|
|
|
77 |
|
|
|
462 |
|
|
|
13 |
|
|
|
62 |
|
Commercial Vehicle
|
|
|
1,058 |
|
|
|
59 |
|
|
|
98 |
|
|
|
695 |
|
|
|
44 |
|
|
|
63 |
|
Off-Highway
|
|
|
787 |
|
|
|
31 |
|
|
|
92 |
|
|
|
544 |
|
|
|
18 |
|
|
|
46 |
|
Structures
|
|
|
24 |
|
|
|
|
|
|
|
1 |
|
|
|
162 |
|
|
|
2 |
|
|
|
8 |
|
Eliminations and other
|
|
|
1 |
|
|
|
(213 |
) |
|
|
|
|
|
|
2 |
|
|
|
(169 |
) |
|
|
|
|
Total
|
|
$ |
3,733 |
|
|
$ |
- |
|
|
$ |
394 |
|
|
$ |
3,034 |
|
|
$ |
- |
|
|
$ |
285 |
|
The following table reconciles segment EBITDA to consolidated income (loss) before income taxes:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|